ILMN - Earnings call transcript Q3 2017

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Operator

Welcome to the Third Quarter Fiscal Year 2017 Illumina Earnings Conference Call. My name is Adrienne, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. Please note this conference is being recorded. call Jacquie the turn now over Ross. to I'll Ross, you begin. may Jacquie

Jacquie Ross

and Good quarter our XXXX. Adrienne. you, welcome of afternoon, year third Thank the everyone, to for earnings fiscal call

released will offer and on a our which the we question-and-answer the after commentary today, activity, will call close of the financial During results we after commercial session. the market review host

will for Investor Samad, If Corporate a brief is Illumina provide commercial results Executive at can This Sam that our Reform be portion it the the earnings Litigation will be you financial our release, all section protected website Francis the audio the be have on not will Officer; is statements business Strategy being will financial Officer; during Act update and our in today be our regarding review had Marc Relations the deSouza, call the a illumina.com. XXXX. Chief and and archived of chance Securities EVP, Francis will in Private Stapley, Participating intent Chief to review activity under and of and section found call Development. forward-looking of made Investors President and results. Financial today's Sam our state It recorded website. of our

no Forward-looking may including based Francis. are upon XX-Q the will With the statements Securities Actual differ turn to uncertainties. or the the call are I results results these Illumina's All subject and Commission, and risks uncertainties update with better that forward-looking we documents statements now over could Illumina to refer differ, understand current Exchange assumes Forms that, files to events to and materially recent Illumina most projected or to obligation actual cause risks statements. XX-K. that and information, and discussed. you from To those available

Francis A. deSouza

enabling the million. to a revenue With improve portfolio, strong XX% unlocking year-over-year global with I'm Illumina third launch good commitment $XXX Thank report everyone. clear We to power system. possible. is customers growing our it of at and At as most unlock that accelerating to across pleased existing while Jacquie, the sequencing believe portfolio, new-to-sequencing you, first while, the transformative with performance is of quarter is our many and is are for the across and to third our both the platform solid goal recently Illumina, as that increase launch lowering afternoon, by genome, barriers With of health results our its demonstrated a customers. time, pleased team NovaSeq's delivered three XXXX, approximately very is the to in XXX of the of clear sequencing quarters and systems the is applications. In to that benefits the in adoption we including mission NovaSeq innovation, human lower same XX in NovaSeq more people we early enables total, than our sequencing the for mind, January. costs output the Ultimately, with shipped quarter. have since in Illumina

from XX last XXX than of no by With longer the capacity. manufacturing sequentially orders systems. quarter, increased shipments with backlog more approximately ended NovaSeq's we expected, As a with quarter, shipments QX in constrained

XXXX now on track and start currently that backlog launch. significantly at we forward trend behind are to we should to forecast us. Going expected, downwards the constraints as Overall, targeted manufacturing are exceed

from of came our NovaSeq third most customers. quarter existing expected, orders As HiSeq

flow flow power, sequencing of in to remain introduction SX access that from and robust and their wave. the the We upgrade HiSeq most early costs, of are cells. and lower confident We NovaSeq SX customers with stages of upgrade are work improved the will our XXX the seeing infrastructure, customers its upgrading demand HiSeq especially still to

for a platform Additionally, the NextSeq be HiSeq subset will customers. of go-to continue to

Moving to of NovaSeqs existing very volume It's X Many completion noting validations projects. start new of customers transitions projects. high with ordered that first HiSeq worth HiSeq customers have their to X. in these will their our the align fleet generally

a fourth quarter the beyond. XXXX result, to NovaSeq expect to and see continue uptake we strong As into of through XXXX

Additionally, NextSeq is coming we in children's has are new-to-Illumina NovaSeq seeing Examples orders of begin with an in-house, bring are MiSeq sequencing continued purchased about and to America and one-third sequencing NovaSeq providing previously moving to exome include of signs to that NovaSeq customer a in customers. that tests. elasticity existing a biopsy QX and hospital liquid from benchtop-only sequencing North

is a beyond to cost smaller and lower our increased stages the per leverage customer multiyear extends growing system believe therefore customer overall, footprint on HiSeq are multi-unit We cycle a that NextSeq moving saw the requires a NovaSeq offers a in throughput still earliest well sample. to also we less time a adoption of that occupies We that population. FTE

installed consumables. sequentially growth by a year-over-year few driven by consumables to in in $XXX strong growth addition largest sequential to to in represents our of $XX HiSeq growing seeing growth sample The volume. with sequencing in customers we Moving This adoption sequencing our dollar sequencing business. consumables, NextSeq clinical are million. to XX% consumable see continue increased the ever base utilization, driven who large of sequential and was million increase strong stronger-than-expected consumables commercial HiSeq our

declined. customers, this of HiSeq consumables Excluding group

given remains transition consumables forward trend NovaSeq lower the going that will expectation Our and HiSeq to NextSeq.

we by China. slight and consumables saw driven sequential in translational X growth As pickup HiSeq in studies a expected,

the expect sometime SX follow flow coming we now to HiSeq with to to available, the similar X With a consumables trend broadly begin consumables, decline quarters. HiSeq cell in the

the portfolio, from benchtop quarter. our essentially flat were to second system Moving shipments

over NextSeq rates of Our range, was was Utilization driven guidance by customers. MiSeq and clinical each our instrument's of benchtop record end represented once the and respective that production remain NextSeq, placements. within half again for range new-to-sequencing customers MiniSeq except a stable exceeded win upper and performance

the sites customers initial is positive with I'm tiers as SX that to have delivered in customers on for flow launches, commercially cell terms cell to the specifications. of therefore In now utilization available. share highest customer high-intensity ideally HiSeq new and expected. very exceeding SX flow cell, X we for pleased product feedback sequencing on suited flow price new been a seven lower at performance SX early-access the Building to our per is compared new enables SX applications. sample of runs

to partition libraries, We April. flow gearing into addressable in and and projects, the we are loaded also up each device first the release workflow is applications. announced lane enables samples the NovaSeq workflow of individually Xp that different cell customers to directly of for This back reagents. allowing libraries the be The lane

and for yields portfolio, NovaSeq SX very gigabases SX, flow in the run of X of including we gigabases release expected testing option next attractive portfolio SX to at end before ahead we're XXXX. output the full X year. a market now to upgrade our out This accommodate those We be data will which lowest terabases. working XXXX is or who expect can terabase The the flow add of for cell. to between to cell to weeks, per utilize The bring coming begin commercial customers, a is the first in which nicely of now beta the The expect the the XXX cell the flow cell HiSeq quarter to the rapid XXX per addition flow of round option. is expected run

given customer applications flow SX to for SX either applications. with plans cell output strong an X suspended SX have of for preference We SX use for and an or lower-output terabases high-output

the shipments our and run to the biopsy world of may by believe NovaSeq future You on drugs a decided with in largely the over endeavor a progress with is NovaSeq three and its growth possibility we is, The oncology, At approximately experience XXXX. plans addition the our whole enabler immunotherapies, to promise the families. lives just scale system, hope as lower are immuno-oncology for capital XXXX, opening objective enable the see on the the the we without to oncology believe U.S. and of had that we our of marginally to testing have quarter. SX customers shipment needs lower is the fully also to clinical important broader development to meets their an flow clinical In grew customer recall cell Based SX gene sequencing additional continue streamline cost existing to patients Consistent Illumina in we that for first XXXX our XXXX, Sequencing the X,XXX cells. flexibility instead course, trials last a liquid focusing specifically, not last output to to to of all alone, very KYMRIAH third quarters, driven as feedback and new that discovery FDA's the committed supporting they offers and Illumina, therefore in in customer deliver transform therapies. approval product sequencing encouraged and an clinical for and quarter, cancer the strongly More new XX%, greater from our to cell into portfolio, purchase. customers. therapy our accelerated exciting application. of customers immune field and launch

and therapies. Another rare for on enough odyssey can newborns analysis. for find genetic for exome fit The enable syndrome disorders reduce than U.S. is sequencing is now potentially does cover rare be or diseases patients earlier by whole and more aren't of targeted evaluation where undiagnosed test cover effect can but identified their X,XXX available. and X, multi-year which known families, undiagnosed nonspecific the or almost sequencing presentation to a to compares genomic clinical exome whole or life-saving is Starting disorders diagnosis important ago. themselves next UnitedHealthcare the their none Once great to million can and where and sequencing exome UnitedHealthcare's parents siblings. and area well-defined a year see routinely and November a genetic takes week, It for There was, in to searching decision therefore, for covered recent physicians, diagnosis. Illumina This for in will be that diseases, by life-impacting that the not and than be specific identified right more are patients whole lives pain a a UnitedHealthcare gene will including well patients, XXX on for diagnosis decision

revenue the customer is almost quarter and ramping of VeriSeq delivered the will tenders around and our CE-IVD during CE-IVD release, full a competitive another of we the of first German shipped in the its The following in availability added with performing NIPT doubling Finally, that product year. end quarter strong sequentially. well sizable samples start quarter, number solution the

Moving grew continued million new the momentum customers. formally quarter, among with marketplace a back launched consumer creating XX% in $XXX our genomics. Helix to completely July, direct-to-consumer microarray emerging to revenue for

Helix time, new companies avenues is exploring added number new available working bringing to from support apps now they teamed products Illumina on XX. create six the quarter, breakthrough products four up partners, total of with of selection the start-up available to same innovative consumers. commercial DNA-driven to a for new amazon.com has During with At products Accelerator the and

the I'm happy a roles. Before one including Corporate scale. corporate infrastructure, want over and of partner me I and responsible in and to global has I role Chief to accepted announce Administrative strategy, functions of corporate an Stapley to invaluable been hand helping Marc to exceptional Development Sam, our develop business some change for as and has of Strategy hired the share in leaders, facilities. with Marc EVP leadership has and while affairs Officer you development, government G&A IT our call that

General the of the to key strategy directly change, in when Samad; I'm including Dadswell; involved will forward report on and now Council, hired, deeply result more a transactions, process have focus efforts. to Chief our Officer, new looking Chuck driving our CFO, Sam our sequencing getting People population me. As and Marc

Illumina therapeutics, To-date, novel financials. I'll ranging to quarterly Finally, in seven the million our diagnostics research and industries that early-stage genomics-focused has of call highlight first Ventures companies With a I'll for made tools and its review that, Sam Illumina Ventures for food $XXX security in to raised investments hand Sam? fund. biology. synthetic from over

Sam A. Samad

Francis. Thanks,

as growth in sequencing discussed, grew million, by quarter third prior-year growth portfolio. and to instruments, driven instruments XX% period, EMEA well while our versus Geographically, grew the both across consumables driven microarrays revenue as largely XX% strong performance and $XXX year-over-year sequencing in As revenue consumables. grew by Americas XX%

driven therefore China. our Asia-Pacific the more of and direct-to-consumer primarily Greater total primarily $XX customers. instrument instruments sequencing by of Japan offset family shipments of year-over-year to $XXX XX% in XX% to revenue. as strong and an million, Microarray was HiSeq than year-over-year, growth XX% unusually as had XX% than revenue Total instruments million, quarter continued offset in more instruments expected. million, shipments grew an XX% weakness was by by shipment part from driven grew NovaSeq represented the muted of increase in at Revenue overall by $XXX

$XXX noted, Francis total was up revenue. sequencing quarter consumable XX%. revenue XX% of million, million from As $XXX million $XX Microarray revenue was of XX% Total third consumable of last represented up consumable revenue year.

Third XX% $XXX genotyping from was last driven quarter by from which million, to total quarter up product up due services freight, other year, quarter. strength revenue, Service contracts. the demand sequencing and includes year-ago million, was maintenance same in $XXX and the consumer instrument XX%

non-GAAP quarter refer launch last the NextSeq. Non-GAAP Moving the with earnings $XXX expenses, by GAAP subsequent net and and the compensation. which operating which offset by year. margin from basis from reported XX.X% head in up and measures on of release last and attributable lower last all I increase lower to an includes that a reconciliation improved growth higher was results to part in stock-based encourage of earnings more will XXX Helix gross gross stock-based share non-GAAP the you decreased expense. and expenses in array than compensation introduction. found review quarter instrument XX.X%, $X data to quarter Non-GAAP supplementary were sequentially XXX NovaSeq our points associated Year-over-year can to results, operating with today's with margin Non-GAAP XX.X% sequencing in margin shareholders. and available highlight count, basis per our I XXX the references favorable consumables to basis margin million mix, third mix website. Please due NovaSeq was gross in points income lower of operating Illumina and to increased note margin points impacted services expenses million, up and be

in compared the operating XX.X% quarter. Excluding margin Helix, to was XX.X% second

expected, was to in from QX tax ended XX the days $XXX in $X than of last million was Illumina foreign per of rate diluted year. $X.XX days and linearity expenditures stockholders quarter, income approximately $XXX Helix forecasted equaled stockholders $XXX compared were and million. returns benefit income $X.XX. with earlier Of with third cycle diluted $XX share, benefit cash to investments. credits attributable our the and net attributable GAAP note, million free credits increase million. quarter. manufacturing, $X.XX net or cash was overseas Capital We For Non-GAAP third additional to R&D collections flow quarter. DSO a per share. lower to Illumina the tax QX also to compared was attributable Cash income XX dilution flow on billion with revenue onetime with short-term quarter in We reductions our what saw this million year non-GAAP was we in and XX.X% associated in and prior to operations filed Improved QX led the $XXX continued or

average program price previously an at quarter, the XXX,XXX $XXX. repurchased buyback of shares During our under we approximately announced

expect Moving of XX%. growth approximately to revenue guidance, full-year we now

For revenue. expect sequential sequencing more increase typical quarter the consumable in of a we XXXX, fourth

quarter be to expect margin the expenses slightly We fourth to third from slightly dollar basis to on and be gross a from up fourth quarter, non-GAAP the third up non-GAAP quarter. flat operating

per in we a We earnings expect $X.XX expect and share the fourth share range non-GAAP of normalized Finally, rate $X.XX. earnings $X.XX the more tax GAAP of therefore range to to full-year for $X.XX XXXX the per quarter. in

the to we Investor team. Q&A, welcome start Jacquie Before formally Ross to Illumina Relations the I'd like

as new our moved Rebecca you thank to leadership many Head As for contributions organization. has finance role her over Rebecca has Chambers in session. to since from Operator, of Jacquie now taken every her who wishing in in most know, of her a at you will are Q&A Illumina we I the We know join role. ready success begin new XXXX, me and IR

Operator

And Thank from our you. go America. question Bruin Derik Bank We'll now begin session. of from the question-and-answer comes Please ahead. first de

Derik de Bruin

Hi, afternoon. good

Francis A. deSouza

Derik. Hi, you? How are

Derik de Bruin

Good.

traditional QX Sam of XX% in the XX% quarter, So, wondering QX. you I'm just it, up XX% agents sort on ramp. growth year-over-year. with what's it the and and first alluded you quarters. so sort numbers in and just the stocking And to. more last the to alluded to consumable chop NovaSeq guess – normal few said I of ramp nimble consumable that question, quarter-on-quarter, quarter but the of

Sam A. Samad

Yeah.

what off. expect I in driven I the did and So, go growth with going look we Derik, forward, we'll to thought seen ramp dip QX when slight We QX by was growth in of NovaSeq take think forward, normal a have, consistent consumables. destocking the consumables see we QX, inventories. is a of as consumables think look our at back what to we've of which typically And we we

down expect We the we had expect of consumables X we expectations. continuation because noise experiments consumables said forward. that's – come the But that's to little of be before, as going HiSeq X per be bit as we've see a going a with HiSeq lumpy, forward, bit HiSeq And platform. go going on lumpy with we some some

so might but Now, we see by consumables SX eventually, down have X consumables. we the and HiSeq come in growth NovaSeq and see the will ups that introduction downs, we see offset

terms trends that's directionally the So, forward for rate, expect you of number consumables. should you growth giving sequencing kind a but in of of terms in what that's our without going

Jacquie Ross

what side, QX high for end I'll just essentially, above add, as will it's of to happen well. in Derik, NextSeq so, was that quarter, and we clear that range did the that the that on the say the not

Derik de Bruin

sorry. I'm

above the high range? You said NextSeq the end of

Jacquie Ross

the end the quarter. this range above of was It high

Derik de Bruin

Got you.

or my there you're I was flow time just capacity demand as the it where about guess is a is you going essentially the understanding in it little Can SX. meeting released manufacturing to I be flow a overcome? some any the for talk about – it could of thought SX that? talk to chip the And was is guess? I same you the Okay. or research that about delay Is there delay concern cell about because trying issues that, cells was,

Francis A. deSouza

team Xp and It's workflow in delay out. the modest quarter the the this and flow prioritized Yeah. of getting a SX cell

Derik de Bruin

Got it.

Francis A. deSouza

team And on chemistries. so, that continues. SX currently is the And it optimizing working the

out that come And QX. expect we in so, to

Derik de Bruin

the in back you. get I'll Great. Thank queue.

Operator

ahead. next from Please from go our JPMorgan. Peterson question And comes Tycho

Tycho W. Peterson

Hey, instrument side. thanks. I guess, on question the

sequence mix little of think versus we new to you coming versus can about kind from is customers, you with a the one-third but consistent gap orders between when talk XXXX and benchtop NovaSeq legacy As And that much base gives I I talked bit you about how end first up canceled you customers then, given of HiSeq XXXX, XXXX from XXXX, that last it here, know price may quarter, only X customers? What that actually been the announced the about was will XXXX? lower it. now the confidence you've into about that think $XXX,XXX have trade customers

Francis A. deSouza

Yeah.

these now, new a talked came customers fact So, in that two benchtop the quarters did a for for majority, only, coming orders and do HiSeq about about of demand, well quarters it in HiSeq sequencing two come demand, that we've majority one-third therefore, a seen segment. and typically to NovaSeq the from as row, good the we've was customers. healthy from X in Illumina from math, that and come The as just

that validate the have start think added that last buy or are quarter, obviously X just the about we in And and In and over fleet HiSeq to We replatforming. starting seeing about definitely to we're see about HiSeq customers beginning first wave. number NovaSeqs to talked XX% fact the quarter. XX% the this the NovaSeqs. their bought upgrade customers We of the of

happening SX put more see quarters. the those expect we've to out, that coming in Now we of

SX multi-unit we in orders come more so, put we've see expect now And out that there. to

force field was this found XXXX from demand and and team, talking that a of typically, the that XXXX, amplified is terms NovaSeq as a that back Tycho, feedback right? In the for to that to really customers sort We most fully the and our there with lot leadership version what case, in of the the asking lighter XXXX we as of and high XXX, for the weren't to platform XXXX, dynamic for we HiSeq the throughput here expected out, for of XXXX. well. XXX had lot end not XXXX the we had so do would our have of waiting NextSeq we the the the customers. be a we And you'll put and recall, So, sort of instruments customers be for And and XXXX. there next certainly the

playing they're customers out Otherwise, looking choice a right that is at the what's want looking high having instrument, NextSeq. are And they throughput at the the if they're XXXX. is so, now our

we go one as be that so, HiSeqs, the or of opportunity then, there'll to think the opt instead. majority number And to about will of but them NextSeqs for upgrade expect NovaSeqs, get more we a them

Tycho W. Peterson

then, just know talk you being How out it Okay. versus the full genome about versus done to other of much bit just had types you've work I follow-up, little And exome on quarters. a can is Nova? couple a applications?

Francis A. deSouza

share is the broken haven't I anecdotal but right of can We now. feedback of certainly, sort of seeing all some we're out, above that the it

customers don't now, rare to to getting a sequencing rugged, seeing region. exome into or a genomes. of have game they An do. a collaboration whole there's NovaSeq looking got are of in whole sequencing exomes undiagnosed customer new and whole sequencing we to genome example about be We their alliance for that that was do support We're outsource that reimbursement talked playing with new we would in the are then, to now that East Middle the out that trio purchased sequencing. the China, project, for sequencing their the talked that participate that and what's example, In where case, diseases, of NovaSeq that hospital in and phase to second NovaSeqs genomes. in-house, out a in for there example, with they so customer to that seeing didn't that Greater about bought any the And genome bought do that Saudi I previously of North America out whole or the are

provide to at exomes. do will And NovaSeqs be so, that to hospitals potentially look looking that

out but exomes. seeing And like applications, from genomes, too into early biopsy. it to this liquid oncology we demand to genomes. of We're all point, exomes getting the so, And at seeing seeing talked then, coming break to it's above. We're people we're new specifically, panels about from to

Tycho W. Peterson

Great. Thank you.

Operator

comes from question next from Jaffray. our Bill ahead. Piper go Quirk And Please

William R. Quirk

everybody. afternoon, Good Thanks. Great.

Francis A. deSouza

Hi, Bill.

Sam A. Samad

Hi.

William R. Quirk

I has Certainly, on be times. is, up customer couple to our SX question the flow healthy released. just waiting diligence There that picked be launch. for guess, First a a that's of to segment particular cell been appears

recognize And you inter-quarter since don't you couple or talk respect and so, to weeks just interest orders like want add talk any a color I orders anything to about released you'd like can Thanks. to ago? that, but just of pace the with you've SX the

Francis A. deSouza

will Yeah. frankly, really to to what share SX with customers the the aren't sense economics the other flow as them. certainly, excite but again for cells a in about you the And I makes that be way anecdotal, X exciting

in more for workflow, But so customers waiting HiSeq out waited And were the some over of to to some our purchase the enablement at the playing get they can X and to of there with all. conversations instrument in customers, platform, other you NovaSeqs did and SX move makes are majority NovaSeq them playing that NovaSeqs. the at X so, the moving the looking the as at customers, is HiSeq the understand X look how differences. of they understand the are SX got but they are if the HiSeq out. familiar with that's some fleet once really the cases, over. the In how for the their But fleets SX cases, this NovaSeq for sense into out, market's And get

William R. Quirk

Helix. I point a the appears where that if of that. of Thank the launched any of subjects kind we a here, for you of kind you other relative about apps can at some we relative to kind point? DTC are of so, it have slightly And way that at additional rollout to some then, that we talk Thank it. and you maybe business guess broader Got this us that changing Francis, now of can the help support? about magnitude be you. customers think And contribution

Francis A. deSouza

about for They launch. still last a few only to will they the talk Helix announced, It's early their months launched that us have. too quarter, contribution post so

they're phase. still their so, ramp-up And in

the that the think right of I sometime give you to business, next over for it'll early too on us but now. more year, again, more course make sense details it's

Sam A. Samad

our And still terms material to of Yeah. revenues not discuss. overall in it's

William R. Quirk

Thanks, Got it. guys.

Operator

Doug And from question & Company. go from comes Schenkel our next Please Cowen ahead.

Doug Schenkel

Okay. Thank have a, to question I going it's back you. guess, multi-part one consumables. I sequencing

NovaSeq instrument, it's launch, of, before? example, more NovaSeq labs annually more on spending the a consumables both biggest questions more the First, that their consumable when you growth sequencing detail comment than million in to clarification. $XX per you Thank additional in What growth spending Can just class? is consumables see And by was is really on provided that detail? $XXX,XXX a the than the how guess, how I'm seeing out lead or one HiSeqs is For now, on and year and not this? NovaSeq of sequential just that to revenue going if you on revenue is spending asking legacy it to on $XXX,XXX of what NovaSeq? I specifically? third in will new much end lab the say and expect per up you one if two spent Second, the didn't more overall When instrument whether it's you. will think consumable a provide NovaSeq, we per of instrument consumables two jump part lab lot total is a growth bigger but on answer HiSeqs sequential revenue. for with How important can yes, consumables question, did you're and to lead not, increase swaps to driven much attributable on NovaSeq. lab per a being confident, on revenue basically, based that I

Francis A. deSouza

All right.

Let at answers. a cut take me the

growth our of So, million across sequential was driven $XX by all platforms. the growth consumable

sequencing in one consumables. equal. platforms, look you single at obviously, if So we But, growth of the our growth sequential wasn't every saw

the in the the So biggest the if that part from of portfolio part high look throughput you portfolio, our part growth NovaSeq. of of at came

portfolio the And sequential was of so, the part contributor growth high the that that to throughput on biggest the we sequencing saw. consumable

that were you benchtop NovaSeq contributor was growth was the and the consumables grew. again, – consumables although big platform drivers saw the platforms but every On that really all – of so and that sequencing sequentially. biggest NextSeq It that growth NextSeq, side, to you growth our the grew,

time labs to share lead stage NovaSeq we are spending access affords. accessible points and some is SX SX, that at price we funding And certainly price that the being what in before. That that to samples are can at beginning at will obviously large-scale there the of to terms projects have In coming are anecdotal more lead and giving become where drive points with for out will the there SX We're those with over of more are additional hearing feedback. applications, to spend. they that didn't able consumable we customers that labs consumables, access

in is buy What's is did. to but you in indicators front capture still see don't in, of the the of if Can by I And didn't encouraged I then, coming of very are lot in buying a show NovaSeq believe Doug? know terms to it, come seeing new you repeat new NovaSeq because terms customers in question. they customers instruments, positive. people early we third guys so, actually pull-through And in of thesis. that up us, consumables, that

Sam A. Samad

repeat can you it? Hey,

Jacquie Ross

Yeah.

Doug Schenkel

Yeah.

instrument revenue trying sequencing sequential you instrument was clarifying what is commented class? that per both pull per total increased per to I'm if through on and across I you Just sequentially. just instrument, meant revenue by guess all growth instrument instruments see overall per when that that

Jacquie Ross

you, then check me into Let back get to that Doug. and

Doug Schenkel

Thank Okay. you.

Operator

from question And ahead. Arias next Please Citigroup. Dan comes our from go

Daniel Arias

of guys. trigger a to the dynamic the Thanks. I'm that the Yeah. their maybe the take systems trade-in down guys customers these Afternoon, Francis, existing to tends there's box. Obviously, others just you're keeping whether level HiSeqs. of aren't. are that curious sort shot a decommission and at Xs utilization of finding around some and shutting

doing are commonality noticing you're the math? trade of in I'm amongst any that just sort So, whether those wondering

Francis A. deSouza

Yeah.

about So, the let's trade-in talk the both and decommissioning.

customers by it's business forward. really much aren't by What their rates. we're driven is utilization finding going terms driven of conversations Our the as in plans expect what

they didn't customer And it's them on whole so, genome a but history into it's that plan are that and new into them the decided get have exome, of business accessible some market. servicing see whether the whole that based to now, the again, have new to NovaSeqs sequencing are getting we

perfect overlap by so, by plans rather the rate the it's business (XX:XX). driven There's it's much between not And forward overlap there. than some but two going a far more utilization

Daniel Arias

Okay.

Francis A. deSouza

decommission, base the of just decommission terms the instruments the and HiSeq installed from from for removed installed numbers, any XX we we approximately In base. not did Xs

Daniel Arias

even maybe talk just That's help maybe a bit, models our you last or year? switch on this (XX:XX) volumes year house. sort Great. thinking And or of topics with of versus us transitioned right. volumes of then, on maybe NIPT the little willing Would helpful. expectations I'm to All out specifically you sort revenue can Sam, for Francis Verinata, line? be the

Francis A. deSouza

this a have we are States XXX to not the is seeing that don't dynamic, we're of very because XX% are volumes, for some from market the United where talking at covering are And lives the that we we million progress to an NIPT testing. And Europe in with dynamic population. be of perspective, from the specific then, point, reporting we're testing so for the so, covered NIPT share moved encouraged seeing At both continue population, are have now terms we've that the countries in by in NIPT about entire progress right? away those sharing market we you. volumes about the we're What reimbursement,

for countries Belgium, France that and England in to Netherlands, like the starting we're then, and in And see so, population example, we of getting where parts covered. happening see the

So, the having then growth. which of to is people obviously revenue volume we see talked sample that terms continue drive driving that growth progress we then and test, to about in access the will

Daniel Arias

Okay. very Thanks much.

Operator

from Massaro ahead. Mark question go And from Please Canaccord. our next comes

Mark Anthony Massaro

Hey. Thanks, guys.

something and are unlock the that I week question area you about term? for excited but near is then, last is into about, think ASHG, consumables you talked sequencing, NovaSeq and which at keynote metabolomics microbiome he about went he of most surprisingly So proteomics. a that and he's Gates you my excited and drive the can being gave guess, gut utilization research R&A Bill most

Francis A. deSouza

expression is excited cell whole even side metagenomics excited exciting oriented, some immune-oncology, that's the promising research to single in of going types, of are single areas we projects actually arguing commercially there be exciting Yeah. We the lot agree in this case, in happening to tissue. think area that's also a a genomics, paradigm emerging this We're addition think very never differential for more a and I that about exciting are to on in we're research. for about number the cell research new and a is against of excited very mean, I'm about. driving Bill I across that understand and a very We're And that example, proteomics. area Gates. that is research. is that the that driving of but

the that's think in exciting some and too, potential. term, really I interesting an long So, area, has,

Mark Anthony Massaro

just quick a Great. own of picking interest give the biopharma, some it And doing from as can that's at their all, us if to you relates for sequencing? sense a up follow-up, as

Francis A. deSouza

We talked the and We growing from a that demand that about term example, see specifically, core immuno-oncology the continue for over immunotherapies. tool is long in fact to sequencing segment.

as watching an not And well. so, us to patients exciting but promise, that continues for area that for holds we that be one just are

long continue as a them that'll I see time. we of and so, part our business be so growing And to a for expect

Mark Anthony Massaro

Thank you. Great.

Operator

question next comes go our ahead. Patrick And Donnelly from Sachs. Goldman from Please

Patrick Donnelly

guys. Thanks, Hey.

trend? and it market your another the then, lower one-third the for customers changed And this quarter size the size, sequencing side. market of of I as given has Looking from customers that's NovaSeq, bottom, kind here, of new at on guess few recent utilization that the the is seems the for to boosting expectation expected you being a size capturing then, with orders NextSeq the market maybe

those market the think are about you of how just kind two offsetting maybe or So, dynamics expectations? relative to initial your

Francis A. deSouza

Yeah.

said start coming into track comfortably. we is on for to I'll said very and quarter, how plan pleased the full-year and saying we we – quarter, this this exceed NovaSeq this by NovaSeq year it is are performing, had So, that and with last exceeded this we that

out we in the very market. So are overall, with it's pleased playing how

term, the will NovaSeq. vast We continue our upgrade customers in HiSeq to and that most majority move the long believe of of will to them

that's of to we The wave that's some play quarters it's way encouraging of will And move now move one-third looking expect it that are obviously, the most is to to and too, for sequencing row. that we out new incremental, but two NovaSeq. upgrade to them Now, at. expect good out us, the NextSeq them see we to do playing a in for to

overall, say very I'd happy. So we are

our We path. though, we this the for that continue exceeding multi-year year. is are to We believe, plan believe, do upgrade a

and the was it to thought upgrade coming to believe continue we So into that. a year, three five-year wave we

Sam A. Samad

to just within includes one-third, customers. only benchtop it And also clarify, that previously

will down moving see well NextSeq customers portion to to we Francis' a with agree up HiSeq. as So, evidence of customers as XXX from point, move I that NovaSeq of

Patrick Donnelly

over When think one some Maybe other think the Sam, ramp. margin the we for instruments term, we long to dilutive margin But Helpful. relative out should still Nova, how the Okay. about of maybe in the on early profile the side. obviously, about just there?

Sam A. Samad

Yeah.

said, think, improvement quarters, profile NovaSeq. you improving. I costs working margin overall helped will That's through, drive the introduction, any some which for mean, of we've product been also has the as quarter. for with gross As few improving margin you initial our in been see I the The

the you X and the HiSeq I'm the think, to quarters, of close and profile expect, not about the what is level. going that out talking essentially quite – approach at NovaSeq instrument forward, X but will here, over will play HiSeq which I the need HiSeq coming will margin approach to

level. So, at instrument the that's

Patrick Donnelly

guys. Thanks,

Operator

Amanda And question our ahead. Murphy Please go Blair. from comes next from William

Amanda L. Murphy

Hi, thanks.

I get So markets just a about We new or guess, that everyone growth. just just, I'm I question, higher enables. if guess, level sure you lot, about does I NovaSeq a applications long-term what thinking think had, new asked about

idea a of to curious Obviously, you're and it? drive kind there's of this – more that in that you how the so if of samples you into over growth about to currently. time using biopsy liquid longer about you expand the kind just that's thinking about complexity lower think would people agree you you then platform. of new? more how Or historically. And need what because the terms think that something bit samples way and was are But would I term, have not that is right to cost and it's doing seen talked you've it or

Francis A. deSouza

sequencing will to be believe of definitely enable of a that on number We types new done NovaSeq fronts.

they larger at NovaSeq are efforts before could because enables macro the larger be cohorts. sequencing that And were more experiments, scale, So, of customers also accessible population so fundamentally scale. to I think at more the NovaSeq. micro than But

economics the see, to are NovaSeq. contemplated and single-cell projects the exciting seeing, expect we power because we of of So lots and of being

hasn't expect, we on a way access in scale enable so every that hand, been at NovaSeq one cohorts the to And will done larger before.

done applications of We size sequencing also expect lot intensive we're the that, cohorts, a and seeing being we're even with more. same seeing of

more that's having enabled power people more growth at to does. in And is what NovaSeq the So by customers liquid lower access costs. and biopsy access having

by is So accelerated think, the market, I biopsy liquid NovaSeq. like something

applications over very, power very and of now the for that's course can And But doing a to to will, sequencing liquid but rare starting there's that, framework there's do doing deep think from I believe, need also to see recent to early we're And is where you'll that continue single-gene as of like and the needle with sort movement genomes. in diagnostic reimbursement panels the be PAMA exomes see event, move up a see require the I enabled you biopsy in type the And do multiple science; to set doing journey. larger the interestingly and panels that multi-gene multi-gene find actually, years, then then NovaSeq. start where again of molecule. in to the right? be enough, get that the panels. it's set think to bigger rare to of NovaSeq you we the that this And to helpful to helps dimension. you higher panels haystack We yield starting we that know do very, genomes, all better But work, continuum. decision And applications that you migration exomes those

so, And at of horizon, cohort also the more fundamentally new at enables that but cohorts, multiyear NovaSeq believe larger a on scale. sequencing scale, the sequencing types deeper do we intense,

Amanda L. Murphy

it. follow-up liquid one on the side. Got quick then And just biopsy

about But product longer talked the into the be about there's so dollars the the obviously, guys that on months? near enough the is later-stage moved to thinking are that you to over term, market a biopsies, do patients. guess, move So, Is GRAIL term think, products research next I consumable enough for additive being whatever has thinking to already and needle year? liquid growth just reasonably you or XX for the next that instrumentation

Francis A. deSouza

into been both I – a of of if sort and at number on now the financed that categories, have on resourced to think market. are look the there look I you screening that think companies side,

biggest and selection therapy one again, will NGS was really of biggest extent big doing customers. among of you be. that very there more GRAIL XXXX in sequencing later opportunities look unclear GRAIL that it's positive. potential actual difference. our be for play that's a NGS applications Similarly, our And segments into where a the that about can are oncology where That studies that had to market just very will make before it's that if remains talked to out our probably time in intensive general. before. overall dynamic among like that, I in whether NGS to good stage, the think over But business. customers a our monitoring, of large-scale So oncology aggregate, And as a sort is the no business that companies it's up say customers what not for having We've is the anymore. have whole. in And brings And to definitely the additive more fact healthy you or show impact

driving all in And penetration we remains and incremental think big believe. our it's that a very so oncology, opportunity, terms of I into

Amanda L. Murphy

Okay. much. Thanks so

Operator

Beuchaw Steve next our question Please Stanley. Morgan from comes from And go ahead.

Steve C. Beuchaw

you Well, It's to to I'd and a reiterate note on like the start welcome to Jacquie. just lighter – back. bit great I'll say have first

Jacquie Ross

that. Thank you. Appreciate

Steve C. Beuchaw

follow-up. given related more One, number the impact My third topic quarter things. you to sort serious seems first bit above we are just ordering sequencing thought we very topic to a a a went that note these little binding had pretty of a patterns, do on do here consumables. of could the have who I As strong? could I the two how if popular of back comes in retrospective? more an simultaneously also at you the a wonder of big question growth be there looked in Why there then would the first in then constituencies And aside you And think any What it amount of of trend do of like the that the patterns have half and different so destocking And ordering year? setting the first on still significant the back across trends a the thread? half was significant would the had? quarter, obvious, year, constituents sequencing consumables, the different be NovaSeq stocking. consumables in

Francis A. deSouza

year anticipate primarily at would it's in launch of board, the we If some in coming it see into destocking, the the across what consumable I NovaSeq. felt customers handful as was that we consumable that sequencing as growth, the did that's at would if NovaSeq, we we that, every Sure. destock out that looked We across saw platform it, potentially the they look growth you had. QX, And at look you and QX. played X

think started okay, maybe And have did likely factor to the destocking and we could played in here? of It it a have probably down, so break could when I platforms. those one certainly

platform. the that's if for the market But single think possible, growth stories board, example, story, we around or across the And for consumable across and each HiSeq are why HiSeq. saw sequencing I of segment it's X there growing. you said look I every

through, MiSeq driven our in it clinical or in be and addressing, grow, or they're see continue markets the customers flow that's in starting that in in for could NextSeq example, commercial growth and samples For to we in or to HiSeq. in oncology by that's NIPT, whether example, some that's

that's is, the we're across seeing dynamic X to up. the NovaSeq, and happening what's across our is show In you're so to platforms. grow. demand different starting of And NovaSeq in And board, ramping see starting up

potentially is are market. seeing so they board, that's of on the a our spending across that's destocking more them what I part driving out with bit And playing the seeing But consumables. there's we're little demand, and of in that again, the customers think

Steve C. Beuchaw

see all been it's know, this appreciate driver that I service. The a so behind reasonable and that. growth some good think color. do really there? of microarray on are is is services and year, given growth there follow-up out of you success on good medium-term a Thanks microarray going much everything what we much, But really you course, rate for simpler much. Okay. It's stories

Francis A. deSouza

for and that plans definitely to own have are out, for growth. It's us. from you're has customers been playing the a been are there number of a Those into other seeing market. us that that big their But demand there the growth And good story are continued too. it. segments obviously from then direct-to-consumer drivers exceed A driver translated

drive is For and for continues products. example, microarray very demand to segment agriculture interesting a our

expect We the see from to to perspective. continue grow customers' demand their

production They're of looking that types the sequencing they're actually expand they're talk looking sequence. to to either ag expand do. species that You customers, the to to looking they

our they market. big very still that consumer believe to stages they of this DTC If you talk customers, early genomics the are in

a already that decline sequencing. continue market, terrific customers value seeing And at the play the we're that's in horizon, to demand good for news about obviously in for very getting they are expect already starting and early more we're the out. We're to Illumina. microarray And though, at example, from because see really so, hard the you'll them that news and it's from perspective, the that to It's us they their to if customers a line. But into means those that And and sequencing that's predict, for ag happens, us you obviously, talking will markets. moving out to our tell then of to if customers sequencing. look demand stages grow also,

when DTC how know demand So to going to for it's predict move which encourage side. to to of hard down obviously, happens, microarrays everything those you'll to can will move again the sequencing. we if do the And us. same that. to sequencing see will It's on hard up, sequencing over is and see that go and microarray much And then obviously, come you'll this when time, markets terrific thing we're and

Steve C. Beuchaw

Thanks again.

Operator

And go Bank. the next Leonard Dan question comes from from Deutsche Please ahead.

Dan Leonard

you. Thank

thinking First XX How or good question that you orders a as on accelerate the that run quarter, pretty rate progress Is are you about the run in launch that you rate you the should a NovaSeq perspective? that decelerate here? or the mentioned. are thinking from in through

Francis A. deSouza

quarter and quarters mean, constrained them hard being we've a was on quarter. this it's not specific has of we one So we for when had quite And There manufacturing. quarters, I two been a call by market rate. their were the it's there to manufacturing. was – quarter run own first are now dynamic. fully the is three yet, by Obviously, constrained without launch exiting the each

And the of for the with consistent with NovaSeq with the will – curves, an X. we're seeing yet And the so what this say, some where the previous by looked order we including we though, we're I into is think we stage rate. we that, can I what run saw at don't year, looked order curves quarter call as instruments, coming at our X.

we've a orders regular more state rate So, it's the before It'll to but at I yet run not this basis, take we think, of before. few what the stage, quarters, similar at curves to steady seen quarter. per get are a

Sam A. Samad

backlog as past. up now just a in constraints exiting And I of which have of terms well, that we would instruments, built very the has are NovaSeq production we because which QX we add, had, strong of some

Dan Leonard

of in for that or to or Okay. touch I growth the liquid market. other biopsy. not prior in largely genetic that customer you your germline you XX% the around And tumor seeing the said any Is shipments was on the from Francis, testing? clinical like Can that a genetics, requirements causing segments hesitancy comment authorization follow-up, that clinical from want to markets is in base you market anything profiling factor? are for my

Francis A. deSouza

Look, we authorization a market prior will as friction whole. add believe the that into

talked this industry to And showed market, the so, liquid our when certainly hasn't was want over stage. work demand And I clinical of in time, the It up that's in element translational through. impacting we help growth something about as terms and a seeing But the at on. the biopsy covered we the even about NIPT about testing growth we're talked biopsies. one the to going talked are in here that studies that beyond in the expand terms lives in seeing whole both liquid we're internationally. of We continuing growth oncology

And so a biopsy of that large XX% studies. are that there are number liquid just driving not growth, the factors

Dan Leonard

Okay. Thanks for the color.

Operator

go from comes Souda question next from Puneet the And Please Partners. Leerink ahead.

Puneet Souda

question. Thanks taking Yeah. Francis. Hi, for my

pediatric Clearly, the give the could taken more ASHG, timing a a missing we there here this, and because, that is pediatric price? highlighting change at in clinically reaching near-term and are elements has labs ask in of already. $XXX diagnostic the exome. I NovaSeq that or liquid of with of researchers if saw And market presentations any that you reality, are already the of off So, sense where some us genome is genome biopsy in

to your wanted timing just that of on the genome. thoughts get So

Francis A. deSouza

it you things and is because you wanted see intensive The a is demand application continue trying whole an you of from demand it too, to our thing market on do to here it's the the sequencing, saying and we which was find genome around whole you met sequencing will whole around to is to best way at drive the is you of customer overall ASHG goal, if it's genome that clear Yeah. I would at with by to momentum variance And to could, do it momentum wouldn't actually some genome think even that interesting $XXX I have continue is line that exciting that exome I'll that to if the sequencing. us said, start will saw do perspective, It in from we can that I believe find whole that conversation. you a think to building them a is sight that talking perspective, technology ASHG also exciting exome did genome are you building who I the improvements that multiyear look, see of there. that's sequencing. value size. be we the the a to those have NovaSeq. then prices so attainable additive a we be From down, into a with but get we the to catalyze the architecture that working

technology we the but equally will we volumes have point that would that so step going And that. enable market have give you prices is work by believe that market the with that, highest ready each extend X, lower price elasticity that down. price be our do at a informed down belief you to the take on the we we of than are access rate that think the We there perspective and which at that SX for for from to to got the customers the reach is it

so is therefore think taking prices expands gene per and overall market. the below X, there we the per the by And prices elasticity down the the it genome

there $XXX gated So knowing belief with put now. market somewhat as out the it we that's to continue put given our that we there this at price we for point be any the but architecture, it will can in the first by get we'll is genome step the out. towards point step right that down SX And

Puneet Souda

consumables. a that. the then on question for Okay. And Thanks quick

to trying Just understand.

shake me any and year, the for capacity is questions. combinations, And you and helpful. essentially color potentially of HiSeq HiSeq to the a could entire number whatever HiSeq through and to X in look So XXXXs if can that and for likely an out XXXX, longer how thought NovaSeq theoretical NovaSeq thanks would of of from you the Thanks take we SX, permutation X, to try significant at Have it for be be pull the capacity that seems consumable SX theoretical going sense, the the long any higher be term? run. than there given to

Francis A. deSouza

it. make me – you're that the the sorry, sure is I let question – saying understand So

So what they as the look, NovaSeq? that is out if you're of asking? saying, you the that look question move high throughput at the to dynamic Is plays part the portfolio, that you're

Puneet Souda

Yes.

maybe the have higher world. if which past HiSeq the HiSeq average So – at was capacity potentially XXXX HiSeq whereas known when X XX%, maybe at have you across it theoretical practical as we – capacity the utilized at utilized and was for the you maybe more it rate, XX%, utilization XX% a in utilized

any sense be get to you trying are you there thinking practical their how practical you run, would to just consumables NovaSeq trying versus long color capacity? utilization NovaSeq So of get theoretical to the Essentially if Thank And a color have of helpful. in at when you. look any the the about there.

Francis A. deSouza

Yeah.

access One to with that push by price market the number elasticity that play of are after is lower there are a of enabling to will it out. that, believe have they NovaSeq points, we will go So thing cohorts. customers and the that to larger going things

for you if customer, So, X if experiments. a you larger will are are an do to customer, you look example, high-throughput

experiments. You will to do look single-cell

experiments. liquid look You do to will biopsy

just do was And sorry, thing – your the an those drive to moving so, for couldn't customer NovaSeq is NovaSeq. customers NovaSeq that part includes elasticity workloads that a right? without it to XXXX of X way, whole that's some true whether because that our think genomes, for or wouldn't workloads of number moving beyond the contemplation that before of constrained you're moving customer from transition X, do a And will they an example, you I by NovaSeq. to one on X, of a a utilization And

a has now stable. we for fairly talked of sort As utilization sort and of we think about number XX-ish-percent market, been think about is we the and that that overall of years the the in fact approaching

have too that say, And of would we so happening, designing centralization indicate us them we're that's it maybe XX%. if was to the never market. to there And at much want XX%, look, to running

other sequencing. democratizes to the NovaSeq that high-throughput it access And the in market enables so dynamic is

outsourcing in their lot so in-house. And that those of customers to and you're cases, a they're seeing some move were samples looking

to other we're with targeting And to the so high-throughput the is access democratize NovaSeq dynamic sequencing.

Puneet Souda

Thanks, Okay. Francis. Got it.

Operator

comes Meehan from ahead. And our question last Barclays. go Please from Jack

Jack Meehan

squeezing I And just for for to level me year. quarter low If in. take on want NGS discussed that consumables. encapsulates Thanks would think imply the I fully Hi. the Sam's I of guidance, fourth the start growth that issues. teens much inventory stocking full

you the years' you can reaccelerate on thoughts taking to deceleration, think And prior this XXXX? compared Just of level just in do your that's sequencing place? can give

Sam A. Samad

XXXX now. to right Hard comment on

to expect the now in increase comment early level the of see it's of expectations. what right on factors quarter is, in that again, back look terms think terms I definitively, But, I as is of factors fundamental we'll you you start had which that quarter, consumables start you important and NextSeq will sequentially also there really a What to the you will what ballpark growth us see to to well. what to And go NextSeq lumpiness. some it you're is obviously would that to you that is consumables, in continue the right we your strong also HiSeq looking to progress X would continue QX. experience of And that and or here in you NovaSeq mentioned also see what come are will in the sequencing down, would expect I has will forward. see look but but is sequential growth to forward, as consumables strong pretty at expect, we you with will And with to going SX come especially the to now some quarter this also quarter, you saw on see We in see, experienced on see HiSeq for growth the What quarter. terms or launch. down. eventually but earlier, forward would of over this

won't figure terms the but XXXX in consumables specific of I what expectations those rate. are dynamics So shaping sequencing run are, our a give the sequential

Jack Meehan

HiSeq, in cycle, replacement us dig to component the Can in terms That's give helpful, one the you of trend. color just on how going that Sam. that's how just wanted Then HiSeq validation for replacements to the long for so the you pair Just commentary NovaSeq? far. think up of quarter the where trying more limited and that seen some stepped takes you've

Francis A. deSouza

Yeah.

in we quarter the dynamic quarter And – time. go growth – talked we that out so when to I HiSeq commercial large the think business, over sequencing said, customers we that that drove play look, growing. that saw for expect clinical consumables HiSeq and down in we these the we consumables that had the were their consumables, last was overall about resulted demand seeing HiSeq last

that a over cut-over. that a will temporal we time and be dynamic, expect to be We there expect

the driven changes. of That by it's it's very practices driven whether validation NovaSeq – much Now, by customer go. customer it not take is bucket think is to clinical point little me lab. HiSeq the But be to other a of And ready in unique the a to customer, the they with do consumable for two them. of And validation telling or cases, I going validations months could they're need. one was gating how every customer. In a were the them research they factor days customer bit that the

by of going it's dynamics be think I business. driven their the

you that extensive if quickly are that large over. that validation that will customers practices, have running how have experiments have so, And or move they determine

Jack Meehan

Thanks, Francis.

Operator

session. call question-and-answer And to back this over closing for I'll Ross turn the Jacquie comments. concludes now the

Jacquie Ross

you. Thank

our As next us be through look Investors contained well you This the fiscal our Thank close call, earnings concludes fourth today's dial-in today. to webcast of forward section in of a the as our as a replay of as the reminder, quarter. call following and a update will website in available this for release. we instructions joining the

Operator

you ladies and Thank This today's you, concludes participating. for conference. Thank gentlemen.

You disconnect. now may

Illumina (ILMN) 24 Oct 172017 Q3 Earnings call transcript